Evidence submitted by Thomson Reuters (ECR0051)

About Thomson Reuters

Thomson Reuters (TR) is a global information firm operating in a variety of sectors including the media and financial services. We have a significant presence in the UK, with 14 offices and over 5,000 full-time employees. This includes a substantial operation focussed on geopolitical and economic risk – helping UK and global companies navigate potential harms to their businesses and customers. Thomson Reuters has a long tradition of offering a service called World-Check which aggregates data from reliable public domain sources – official sanctions lists, law and regulatory enforcement lists, government sources, public court records, company filings, registries and reputable media publications – to help organisations fulfil their due diligence obligations (Anti Money Laundering [AML], Countering the Financing of Terrorism [CFT], Anti-Bribery and Corruption [ABC], fraud and sanctions screening) and to identify potential financial and related crime.

Organisations of all sizes are increasingly relying on products like World-Check to help them comply with their obligations as it provides a consistent, reliable, objective and comprehensive source of data which it would be difficult, if not impossible, to replicate internally, particularly for small financial services firms and those operating across multiple jurisdictions.  This is particularly an issue for firms which often have complex customer due diligence requirements.

 

In addition, over 150 government agencies and Financial Intelligence Units (FIUs), including a majority of the European FIUs, use our service to assist them in performing their analysis, given the extensive reach and scope of our data set and the global nature of financial crime. We cover over 240 countries, and employ over 350 trained analysts covering 65 languages globally.  Given the increasing complexity and breadth of AML (Anti-Money Laundering) and background check requirements, organisations are increasingly turning to solutions providers like TR, who are better able to address the breadth and depth of the data gathering, to help organisations meet both their domestic and global obligations and ensure that they are leveraging similar and consistent data. Replicating this resource is something that only a few of the largest corporate institutions could contemplate undertaking.

 

Introduction

Thomson Reuters welcomes the opportunity to respond to this Treasury Select Committee inquiry; it is the latest welcome development into the area of economic crime, which has gradually risen up the agenda of policymakers in Westminster. While we are engaged with the issue on a global basis, we are greatly encouraged by a domestic focus in the UK. We believe that the UK is in a strong position to take action globally in the fight against economic crime by setting an international standard in its own domestic regulatory framework.

While economic crime is truly global in its nature, with illicit funds flowing without recognition of national borders, the UK has an opportunity to be the global leader in tackling the problem.

The scale of the problem is vast. An estimated $2.4 trillion in proceeds from financial crime alone is laundered through the world’s financial markets and banking systems every year. This enormous sum is intrinsically linked to human misery such as forced prostitution, terrorism and drug trafficking. Despite substantial amounts of human and economic capital deployed by both the public and private sectors in preventing and tracking financial crime and terrorist financing, less than 1% is thought to be detected and confiscated via existing mechanisms. In fact, in some G7 jurisdictions, earnings from criminal activity appear to be growing exponentially. From a UK perspective, it has been well publicised that London is a primary avenue for the laundering in excess of £100 billion of illicit money a year [2016, Home Affairs Select Committee]. The magnitude of these figures necessarily has an adverse impact on the UK’s credibility and standing as a leader in tackling this issue.  One of the most complex aspects of combatting economic crime is the visibility of highly complex legal entity structures and performing Ultimate Beneficial Ownership checks.

We take the challenge of tackling economic crime extremely seriously and offer a range of business divisions and product lines that provide screening services to assist firms in meeting their responsibilities. We also believe that pursuing public/private partnerships holds the key to tackling economic crime.  At the World Economic Forum in Davos this year we launched a new coalition. Comprised of Europol, Thomson Reuters and the World Economic Forum, the coalition will work to mobilise and influence decisions-makers at the highest levels to promote more effective information sharing between public and private entities on a coordinated, global level. We are committed to uncovering the true scale of the challenge to help collate the data and create coalitions that will increase the ability to fight financial crime more effectively around the world. To that end we have commissioned an independent survey of over 2,300 senior business executives from 19 countries to identify the true cost of the problem.  The full report will be available in the coming weeks. We will send a copy to the Committee and would be very happy to discuss its findings with you, but early indications are that companies suffer substantial annual losses as a result of financial crime with inadequate and infrequent customer screening measures in place.  Against that, there is near universal support for intelligence sharing to tackle financial crime.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Key recommendations:

Below are the key recommendations that we would encourage the Committee to consider, regarding further action that the Government can take to combat economic crime:

  1. Recognise that private sector firms should be considered to be operating in the public interest in the role they play in the fight against economic crime.
  2. In the context of Data Protection Regulation, private sector firms need greater legal certainty as to the basis for information sharing, both with each other and the public sector, and more specifically across borders.
  3. In looking at its own domestic approach, the UK should consider regulation like the SAFETY Act implemented by Congress in the United States, which provides incentives for the development and deployment of anti-terrorism technologies by creating systems of risk and litigation management.
  4. We encourage UK regulators and national crime agencies to take a more coordinated approach, instead of looking at economic crime through separate silos. AML regulators tend to approach supervisory reviews from a ‘technical’ compliance perspective while national crime agencies tend to focus on SARs submissions. We would encourage more joined up thinking around information sharing with the aim of increasing effectiveness.
  5. Taking strong action against economic crime is critical to protecting and enhancing the UK’s reputation as a global centre of finance post-Brexit. By making changes to its own domestic regime and pushing for more of a global approach, this is an opportunity for the UK to be a global leader in data sharing and financial integrity.
  6. As a key member of the Financial Action Task Force (FATF) consider amending the technical assessment criteria to include evaluating national bank secrecy and data protection restrictions that may impede information sharing and increasing the effectiveness of AML obligations.

 

 

 

 

 

 

 

 

 

 

Inquiry Questions and Answers

The anti-money laundering, counter-terrorist financing and sanctions regimes

The Committee would welcome evidence on:

  1. The scale of money laundering, terrorist financing and sanctions violations in the UK, and the means by which this activity is enabled

Globally, an estimated $2.4 trillion in proceeds from financial crime alone is laundered through the world’s financial markets and banking systems every year, comprising around 2 to 5% of global GDP[1]. According to the United Nations Office on Drugs and Crime, despite substantial amounts of human and economic capital deployed by both the public and private sectors in preventing and tracking financial crime and terrorist financing, less than 1% is thought to be detected and confiscated via existing mechanisms[2].

Measuring the exact scale of illicit wealth entering the UK is extremely difficult, and disaggregating corrupt funds even more so. This is because money laundering is an illegal and almost inherently clandestine activity. Despite this, the National Crime Agency estimates that between £36 billion and £90 billion could be laundered through the UK each year[3], and this figure does not include UK banks’ international subsidiaries, which are also exposed to money laundering risks in other countries.

The 2017 National Strategic Assessment of Serious and Organised Crime[4] stated that it is likely that previous estimates of £36 billion to £90 billion for all money laundering impacting on the UK are a significant underestimate. The complexity of international controller networks makes it difficult to determine the volume of criminal proceeds laundered in the UK, but there have previously been a number of groups operating at the same time, with each group handling in excess of £100 million.

A 2016 report by Thomson Reuters and Transparency International UK shone a spotlight on politically exposed persons (PEPs) owning land and property in London, with a focus on companies registered in secrecy jurisdictions[5]. It showed that land and property in London are popular choices for those looking to launder the proceeds of corruption into the UK. This is often done through the use of ‘anonymous’ corporate vehicles based in secrecy jurisdictions, such as the British Virgin Islands, Jersey and Panama, where information about these companies and their real owners is not publicly available. In recognition of growing concerns over rising housing costs and gentrification, London’s mayor, Sadiq Khan, announced in September 2016 the launch of an ‘unprecedented inquiry into foreign property ownership’ in a bid to better understand the different roles that overseas money plays in London’s housing market.

A lack of transparency is a critical contributor to this problem. The report found that information is not available for nearly 50% of overseas companies. Despite leaks such as the Panama Papers and the Russian Laundromat – which increased the amount of available data on companies – and using advanced matching techniques to be able to consolidate data, basic details were not available for nearly 50% of overseas companies owning property or land in London. Without the introduction of a beneficial ownership register for overseas companies owning land or property in the UK, there will continue to be a blind spot in the UK’s money laundering defences.

We firmly believe that a critical contributing factor to this problem is a lack of data and joined-up thinking. While data is our most powerful tool in the fight against global corruption, its true power can only be unlocked by linking multiple related datasets. Individual subsets of data may only be able to highlight part of any money laundering puzzle, but together they can provide crucial insights into identifying suspicious transactions that warrant further investigation.

 

  1. The current legislative and regulatory landscape, including any weaknesses in the rules and their enforcement

The current regulatory and legislative regimes have scope to be greatly improved.

First, we encourage regulators within the UK to view economic crime in a less siloed manner. Economic crime functions exist within the Financial Conduct Authority (FCA), Prudential Regulation Authority (PRA), Bank of England and the Office for Professional Body Anti-Money Laundering Supervision (OPBAS). It is essential that all of those bodies operate on a lateral basis, constantly communicating with each other in order to ensure a collaborative and cooperative approach.

Furthermore, it is of paramount importance that the role played by private sector companies is recognised in the fight against economic crime – both in principle and in practice.

Practically, this would mean private sector firms being considered to be operating in the public interest when doing financial crime due diligence and screening. On that basis, and in the context of Data Protection Regulation, private sector firms need greater legal certainty as to the basis of processing for information sharing, both with each other and the public sector, both within and across geographical borders. It is possible that European data protection regulators would take a narrow view of not allowing any exemptions to some of the data protection provisions, particularly around firms’ anti-money laundering obligations. This could have the perverse effect of necessitating the seeking of ‘consent’ for processing personal data from individuals convicted of financing terrorism in other jurisdictions.

Activities such as checks on customers and suppliers to prevent money laundering, terrorist financing and fraud prevention often necessitate the processing of sensitive personal data and criminal convictions data. Processing this data – which is aggregated from publicly available sources and often provided by third party data providers, who have no direct relationship with the data subject – serves a clear public interest by helping to identify individuals and organisations that are engaged in illegal activities.

Moreover, it is important for UK regulators, particularly the FCA, to recognise their role in enforcing the global anti-corruption framework. For example, it is important that domestic UK AML laws take into consideration the legislative landscape of other key jurisdictions. For example, EU and UN sanctions lists, the US Treasury’s Office of Foreign Asset Control, the US Foreign Corrupt Practices Act; the Canadian Proceeds of Crime (Money Laundering) and Terrorist Financing Act; and the Australian Anti-Money Laundering and Counter-Terrorism Financing Act 2006.

 

  1. The effectiveness of the Treasury and its associated bodies in supporting and supervising the regimes

Her Majesty’s Treasury is a well-recognised and internationally respected institution with a long standing tradition of supporting global initiatives such as the UN Global Compact and being a founding member of FATF. In addition, the Office of Financial Sanctions Implementation (OFSI) has enabled financial sanctions to contribute to the UK’s foreign policy and national security goals including maintaining the integrity of the UK’s financial markets.

Similarly, the FCA has an active and well established supervisory regime to review the ‘safety and soundness’ of AML compliance programs in the financial services industry. However, most supervisory regimes have been created to ensure ‘technical’ compliance rather than focussing on effectiveness.

HM Treasury has shown a welcome willingness to engage with the industry, and we encourage more joined-up thinking between domestic government departments in the future.

 

  1. The impact of the implementation of the current regimes on individuals, firms and the wider economy, including unintended consequences, such as the removal/refusal of financial services from/to individuals or firms

The implementation of the current AML regime rests on obliged entities taking a risk-based approach. The trend has been towards a very cautious interpretation of risk, making the prospect of de-banking something of a self-fulfilling prophesy. We believe regulators could provide more guidance to obliged entities on these matters to steer financial services institutions to treat different levels of risks proportionately (i.e. not every PEP is a risk, not every MP poses a risk).  Risk intelligence databases, such as World-Check, do not make any decisions or provide indications that a decision should be taken on behalf of their customers. Rather, they are a database of information provided to customers and are one of several means by which ultimate decisions are made.  We would also point out that, anecdotal evidence aside, we are not informed about subsequent actions taken by financial services institutions.

 

  1. The role of financial institutions and/or professional bodies in these regimes

Financial institutions play a critical role in fighting economic crime as they are increasingly expected to be the eyes and ears of law enforcement agencies and to guard against any weakening of the financial system’s market integrity. However, it is well recognised that reporting of money laundering and terrorist financing needs to be revisited. For example, less than 1% of illicit funds in the banking system is seized or frozen.  There has also been a significant growth in the volume of suspicious activity reports at an annual rate of 11% across major financial centres, with 2.6 million suspicious activity reports filed in the UK and US alone in 2017.  To tackle these issues, we have promoted the work of the Royal United Services Institute (RUSI), a research-led institute, producing independent, practical and innovative analysis into the effectiveness of public and private sector information sharing models globally.

Information sharing between financial institutions and professional bodies is imperative. Put simply, criminals exploit the system when there is no partnership between the government and private sector.

 

  1. The UK’s role in international efforts to tackle money laundering and terrorist financing and implement sanctions

We welcome HMG’s pragmatic and sensible approach to the Data Protection Bill that enshrines the important protection of personal information in line with GDPR, and gives legal certainty to customers of risk intelligence databases in their use of publicly available information when screening for terrorism financing, money laundering and modern-day slavery. We encourage HMT and the government to share best practice on GDPR implementation and privacy laws and encourage their Mutual Recognition discussions for data protection in the context of Brexit with their EU and international counterparts.

The UK was also an early adopter of a financial information-sharing partnership (FISP) model through the establishment of the Joint Money Laundering Intelligence Taskforce (JMLIT). Established as a business as usual function in May 2016, JMLIT was developed with partners in government, the British Bankers Association, law enforcement and UK and international banks under the leadership of the ‘Financial Sector Forum’. As a result of this initiative £7 million of suspected criminal funds were restrained, in addition to the arrests of 63 individuals and identification of more than 2,000 suspicious financial accounts previously unknown to UK law enforcement.[6] We applaud UK leadership but note that this initiative has now largely stalled and has the potential to lose important momentum.

More than 20 national governments have committed to developing public-private financial information-sharing partnerships and considerable progress is being made. Of particular note is the progress achieved by the Australian Transaction Reports and Analysis Centre (AUSTRAC). There are now seventeen participating partners including the Financial Intelligence Unit, six banks, a major digital money transmitter, a money-service bureau and multiple federal and state law enforcement agencies. In contrast to other FISPS, this partnership invites international law enforcement authorities to engage as members of the Operations Hub.

Leadership by the UK in the mould of the JMLIT is precisely the kind of international role we encourage the UK to take. What is crucial now is the need to maintain momentum in order to build on the progress made hitherto.

In order to build on that progress, the global framework needs to be changed to facilitate more information sharing between banks.

 

Consumers and economic crime

In relation to economic crime as it affects consumers, e.g. consumer fraud, the Committee would welcome evidence on:

  1. The current legislative and regulatory landscape, including any weaknesses

See answer to question 2.

 

  1. The scale and nature of economic crime faced by consumers, including emerging trends

It is highly likely that the loss from fraud in the UK is increasing. UK residents are more likely to be a victim of fraud than any other type of crime. The 2016 Annual Fraud Indicator, published by an academic/private sector partnership, estimated that annual UK fraud losses could be as much as £193 billion[7].  For all its advantages such as online banking and mobile payments, increasing digitisation may also lead to increasing fraud and the risk of cybercrime.  Authorities will need to be alert to the need for digital identity standards and access to trusted sources of identity held by government such as passport information.

 

  1. The response of the Treasury and its associated bodies to economic crime consumers face

In our engagement with HM Treasury and wider UK Government departments (namely the Home Office and DCMS) we have been hugely encouraged by the willingness of policymakers and officials to listen to and then speak on behalf of the industry.

However, the economic crime and data protection environment in the UK is in a period of serious flux. The Data Protection Bill and the transfer of the GDPR onto the UK statute book means the framework in which the private sector operates is changing. Therefore, with existing challenges coming from GDPR, we hope HM Treasury and other government departments continue to advocate on behalf of the industry in the UK, Europe and internationally.

 

  1.             Consumer education, responsibility and vulnerability in relation to economic crime

The consumer is at the end of the financial services chain, and so is always impacted, even in relation to activity taking place elsewhere.  Thomson Reuters, however, is primarily a business to business organisation, and has very limited direct consumer engagement, and so do not feel it is appropriate for us to comment on this section.

 

 

 

  1.             The role and effectiveness of financial institutions in combatting economic crime that consumers face

The consumer is at the end of the financial services chain, and so is always impacted, even in relation to activity taking place elsewhere.  Thomson Reuters, however, is primarily a business to business organisation, and has very limited direct consumer engagement, and so do not feel it is appropriate for us to comment on this section.

 

  1.             The potential for technology and innovation to assist those committing and combatting economic crime

Technology can be an enabler of crime, as its perpetrators become ever more sophisticated and move increasingly online. But it can also be one of the most powerful tools that we have to fight crime. Big data analytics can use structured and unstructured raw data from different sources, such as geolocation data and those from mobile devices and social media. They can then detect fraudulent activities, unearth hidden connections between accounts and track the relationship between the sources and beneficiary.

We recognise that this must, of course, be compatible with individual rights to privacy and must pay strict attention to data protection regulations. When the UK’s new Data Protection laws and the European GDPR legislation are enacted, policymakers need to be mindful of how their decisions may impact the fight against crime. A report co-authored by Thomson Reuters and the Atlantic Council found that data privacy laws may even be hampering the fight against financial crime by preventing information sharing, and suggests national exemptions may need to be made if we are to be effective in rooting out fraud and corruption[8]. Thomson Reuters is a technologically progressive business operating at the height of attempts to help organisations screen and stop economic crime. Progress in technology and innovation is not what we believe is stifling the global effort against economic crime.  Rather, while the laws and regulations designed to counter financial crime are predominantly domestic in character, the reality of financial crime is that it is truly global in scale and scope, and pays scant regard to national borders.  There is, therefore, a collective failure for the issue to be looked at from a global perspective.

It is imperative that the public and private sectors work in partnership with each other to exchange data, share information, and harness expertise to help our businesses comply with statutory and regulatory obligations, and, ultimately, prevent financial crime and the untold societal harm it can bring. Without this partnership model, and confidence in the quality and provenance of data, the unintended consequence of legislative changes is that banks will “de-risk” and withdraw their services from the communities and markets that need them most.

Moreover, organisations that are not subject to a strict UK statutory obligation to carry out checks against these activities are able to use technological tools like World-Check to perform them for reasons of substantial public interest (e.g. combatting terrorism; furthering the safeguarding of human rights or preventing serious harm to the environment).

Examples that illustrate this are as follows:

In the context of World-Check, the above five examples are important because they illustrate the role of private sector companies and products acting in the public interest through conducting due diligence and screening functions using tools such as World-Check.

 

 

 

  1.             The security of consumers’ data

Thomson Reuters is registered with the UK Data Protection regulator (the Information Commissioner’s Office) and adheres to EU data protection standards. Our long-standing commitment to honouring individuals’ privacy and keeping personal data safe is consistent with the new European General Data Protection Regulation (GDPR) which takes effect in May 2018.

 

Conclusion

While data protection and security are essential, restrictions on processing and sharing data can stifle growth for all sizes of business and ignore the realities of the cloud and internet data flows. The reality is that the globally integrated economy runs on a worldwide platform where geographic restrictions are increasingly out of date and no longer applicable.

The need for access to data by governments and relevant authorities is recognised as important to safeguard society and to counter crime and terrorism. However, the imposition of excessive data processing, transferring and sharing restrictions on large firms operating in multiple jurisdictions makes it difficult to achieve this objective. Restrictions on the movement of data introduce conflicting obligations for the private sector and will limit its ability to help Government and relevant authorities to combat financial crime. In addition, new data collection, reporting and transparency obligations are introducing weighty compliance burdens. Rules on access to data for Government and relevant authorities, as well as reporting requirements, need to strike an appropriate balance between the potential conflicts inherent in a web of differing needs and obligations, and to focus on outcomes.

Free flows of data are particularly important to guarantee the ability of global firms to carry out intra-company data transfers across businesses operating in multiple jurisdictions. This transfer of data can be important for a number of reasons, not least to support risk reporting and the detection of criminal and other illegal activity. The efforts of firms to combat financial crime in all of its forms should be supported, particularly in the development of the data protection legislative framework, to permit the use, sharing and transfer of data to combat fraud and other criminal activity.

 

Contact

Phil Cotter

Managing Director, Risk Segment

Thomson Reuters

5 Canada Square

London E14 5AQ

phil.cotter@tr.com

 

May 2018

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[1] United Nations Office on Drugs and Crime

[2] United Nations Office on Drugs and Crime

[3] National Strategic Assessment of Serious and Organised Crime 2016

[4] National Strategic Assessment of Serious and Organised Crime 2017

[5] London Property: A top destination for money launderers

[6] National Crime Agency, ‘Joint Money Laundering Intelligence Taskforce (JMLIT)’, accessed 16 April 2017

[7] National Strategic Assessment of Serious and Organised Crime 2017

[8] Big data - A twenty-first century arms race

[9] Modern Slavery Act 2015

[10] What are the Global Trends and Impacts of Illegal Logging?